Producers warn high dollar will cut deep

Jobs are being lost and firms are considering moving factories overseas because of the strong New Zealand dollar, being pushed up by interest rate increases, manufacturing sector bosses say.

The manufacturing association bosses were speaking after the Reserve Bank yesterday raised the official cash rate (OCR) for the first time since July 2010.

Reserve Bank Governor Graeme Wheeler lifted the rate from 2.5 per cent to 2.75 per cent and signalled further rises.

In the central bank's Monetary Policy Statement, Wheeler said the OCR would need to rise "about 2 percentage points" over the next two years to keep inflation in check.

John Walley, chief executive of the NZ Manufacturers' and Exporters' Association, said investment in the trading sector would suffer because the high dollar cut back on the competitiveness of exporters.

"So over time expect to see fewer jobs and more closures," Walley said.

The Reserve Bank hike was too early, and had the potential to further damage the tradeable sector and put New Zealand out of line with the rest of the world, Walley said.

He would not forecast when job losses would occur but said one Auckland exporting firm had recently talked about moving its operation overseas.

Employers' and Manufacturers' Association chief executive Kim Campbell said some jobs were already disappearing from the manufacturing sector.

"You keep the dollar up it means our imported goods are cheaper, which is good, but you've got a whole chunk of the export economy which is uncompetitive," Campbell said.

Some export sectors, including dairy, had never had it so good, but other sectors even in the primary arena were suffering.

"Beef and lamb are dying and meatworks are closing all over the place," he said. "That's partly because they're not good at it, but also because they're uncompetitive."

Asked if there would be job losses, Campbell said: "There already are, but luckily people are transferring into other parts of the economy, certainly the built up (construction) environment in Auckland and Christchurch."

Higher interest rates tend to attract overseas investors into New Zealand seeking better returns on their money, driving the New Zealand dollar higher against other currencies.

Exporters want the bank and Government to use other tools and policies to keep parts of the economy, including house prices, in check, and at the same time not drive up the currency.

Canterbury Employers' Chamber of Commerce chief executive Peter Townsend said rate increases and resultant kiwi dollar could definitely harm parts of the central South Island economy.

"The announcement that the future rises will probably be a little steeper and faster than we'd anticipated will probably cause some concern," Townsend said.